Q4 2020 Procter & Gamble Co Earnings Call
[music].
Good morning, and welcome to Procter and Gamble's quarter in conference call. Today's event is being recorded for replay.
This discussion will include a number of forward looking statements. If you will refer to page use. Most recent 10-K 10-Q and 8-K reports you will see a discussion of factors that could cause the company's actual results to differ materially from these projections.
As required by regulation G Procter and gamble needs to make you aware that during the discussion the company will make a number of references to non-GAAP and other financial measures.
Procter and Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor Relations website, Www Dot PG investor Dotcom, a full reconciliation of non-GAAP financial measures.
Now I will turn the call over to PNG as Vice Chairman, Chief Operating Officer, and Chief Financial Officer, John Miller.
Good morning.
David Taylor Chairman of the Board, President and Chief Executive Officer.
And John Shovel, Your senior Vice President Investor Relations joining me this morning.
We're back in our offices in Cincinnati with our masks appropriately distanced.
We'd like to start by expressing our sincere hope that you and your families are also safe and are well.
I'm going to provide an overview of company results, which continue to be strong.
David will cast additional light on our immediate priorities and strategic focus areas.
We will close with guidance for fiscal 2021 and of course take your questions.
Fiscal 2020, with a very strong year.
We grew markets.
And increased household penetration.
Driving topline growth bottom line growth as well as market share.
What we call balanced growth and value creation.
Organic sales grew 6%.
On a two year stack basis.
Organic sales growth has accelerated from 3% across fiscal 17 or 18.
To 6% across fiscal 18 and 19.
Well, 11% over the last two years.
Indicating the underlying strength of our brands and the appropriateness of our strategy, which is driving our business.
We built strong momentum and a year and a half leading up to the called the crisis was 6% organic sales growth in calendar year 2019.
Putting 6% in the first half of fiscal 2020.
We maintained a strong momentum in the second half of fiscal 2020.
Overcoming significant challenges, including the lockdown in China.
Closure of the travel retail electoral <unk> specialty beauty and away from home channels.
Operational challenges safely staff in our facilities on sourcing materials necessary to maintain and in some categories significantly increased production to sort of heightened consumer cleaning health and hygiene needs.
David talked at Cagney four years ago about accelerating growth in our two largest and most profitable markets.
Fiscal year 2020, U.S. organic sales grew 10%.
Including 5% growth in the first half of the fiscal.
China grew 8%, including 13% organic growth on the first half of the year.
Nine or 10 product categories grew organic sales.
On parent personal health care up in the teens family care up double digits.
Broker feminine care up high singles.
Eric hair skin in personal care and oral care of mid singles group.
Drumming up one baby down one.
30 of our top 50 countries category combinations elder grew share.
Ecommerce sales were up 40% per year.
30% on the first half and 50% in the second half.
Now over $7 billion and sales over 10% of the company total.
Turning to earnings core earnings per share were up 13%.
Currency neutral core earnings per share up 17%.
Within this core gross margin.
Expanded 170 basis points up 190 basis points constant FX.
Core operating margin grew 180 basis points off 210 basis points, excluding currency impacts.
Adjusted free cash flow productivity was 114%.
We increased our dividends, 6% and returned $15.2 billion value to shareowners.
$7.8 billion in dividends, and 7.4 billion and share repurchase.
Capping a strong year, a very strong April June quarter.
Organic sales up more than 6% on top of the base period that was up 7%.
Volume pricing and mix each contributed to top line growth.
Strong organic sales growth in our two largest markets up 19% and the U.S. and 14% in greater China.
Grow market share trends with aggregate global value share up 50 basis points.
The bottom line core earnings per share of $1.16.
Up 5% versus the prior year levels.
Of 11% on a currency neutral basis.
Including a seven point headwind from gains on land and small brand sales in the base period.
Cordless margin up 210 basis points up 250, ex FX core operating margin of 140 basis points up 190 ex FX.
Adjusted free cash flow productivity of 161%.
Summing up.
We delivered or Overdelivered on each of our go in and targets for the year.
Organic sales growth core earnings per share growth free cash flow productivity and cash returned to shareowners.
We built strong momentum heading into the covered crisis and arguably built this further during a challenging in second half of the year.
I know I speak for David and the rest of our leadership team when I say that credit for these results goes to our colleagues the men and women of PNG, who demonstrate an incredible creativity agility and commitment to serving consumers and customers every day during these unprecedented times.
We will continue to face significant challenges.
Perhaps a higher degree of uncertainty than any of us has ever faced.
What we believe that current consumer dynamics.
Our integrated and mutually reinforcing strategies and our focus on a few immediate priority is positioned us very well for the future.
David.
Thanks, John Good morning, everyone I hope everyone is well.
As we outlined last quarter, we've established three immediate priorities they got our actions and our choices this crisis period.
Our first priority is to ensure the health and safety of the men and women, we work with our colleagues around the world with guidance medical professionals, we're constantly evaluating and updating the robust measures already in place to help our people who are making packing and shipping PNG product stay safe at work.
There's never been more important as many of our facilities are running around the clock to Delever PNG products. During this period of increased demand.
Yes, please the second priority.
Maximizing the availability of products to help people and their families with a cleaning health and hygiene needs PNC products, playing in central role in helping consumers maintain proper hygiene personal health and healthy home environments.
These products are more important than ever given the needs created by the cotton crisis.
<unk> increased awareness of health and hygiene and additional time, well all spending at home.
Third priority is to 40 communities relief agencies and people who on the frontline to this global pandemic.
Millions to PNG products are being donated helping to ensure families have basic access to everyday essentials many of us take for granted.
We're providing significant financial support to numerous relief agencies around the world, We're pretty soon hand, sanitizer face mask and base yields in PNG facilities for our internal use all Super Bowl nation to organizations and great need.
Finally, we use no marketing and communications expertise to encourage consumers to support public health measures to help flatten the carbon slow the spread to the virus.
PNC is committed to the priorities I've been trying to health and safety of the employees our employees maximizing availability at PNG products to serve consumers and help society overcome the challenges this period.
Our integrated strategic choices remaining the white ones. They serve each of our immediate priorities in the foundation for balance top and bottom line growth and long term value creation.
We're focused on portfolio of daily use products and categories, where performance plays a significant role in brand choice.
Within these categories. We've raised the bar on all aspects are superiority product package consumer communication, we tell execution in value.
The most sustainable and profitable way to grow is to create new business versus just taking a trading it.
Superior offerings science based products deliberative, its superior packaging drive market growth, which in turn drives share sales and profit growth.
This creates a winning proposition for all concerned hi expansion versus zero sum is the only growth our retailers care about growth it is incremental to the category.
And if we laid category growth for superior offerings, we will mathematically gold market share.
We strive to communicate product and packaging benefits for superior plan messaging.
CNG was just named the number one brand market heard a decade at the Cannes Lions Festival creativity in June.
Not only as our advertising creative it's been increasingly effective in growing markets and building our business I'm, particularly proud of this is it speaks to sustained excellence versus a few great ads.
In addition to winning.
With consumers.
Any indication, we need superior retail execution online and in physical stores that contributes to the growth of categories in our brands.
Our superior performance in this area has been recognized in third party surveys to retailers and awards from top customers that we've been mentioned previously most recently target recognize PNG supplier to year across all our product categories in the store.
We appreciate the recognitions. We proceed but really matters is retailers improved view of PNG as a partner in joint value creation.
Helping retailers go categories and create value aren't strong distribution share of shale display and feature.
The fifth factor superiority is valued for consumers and for customers in performance driven categories consumers, often see the value and paying a modest premium for noticeably better product performance, we're strengthening our innovation across price tiers with the aim is delivering superior value with each priced tier where we compete.
We've made investments to strengthen the long term health and competitiveness of our brands and we'll continue to invest to extend our margin of advantage and quality of execution improving options for consumers around the world.
The strategic need for this investment the short term need to manage through this crisis in ongoing need to drive balanced top and bottom line growth, including margin expansion underscores the importance of productivity.
We are driving cost savings and efficiency improvement in all facets of our business delivering strong cost in cash productivity.
Success in our highly competitive industry requires agility that comes with a mindset of constructive disruption a willingness to change adapt and create new trends and technologies that will shape our industry for the future.
And this environment agility, and constructive disruption mindset or even more important.
Oh can we be even safer, while both producing and helping more what you need to must be met and what new ways.
We're fostering an ongoing mindset of constructive disruption in disruptive possibility.
Our new organization structure six industry based sector business units that manage our 10 product categories with a differentiated approach in focus markets and enterprise markets and very small corporate groups with best in class functional expertise is also served us well.
A more empowered agile and accountable organization with little overlap or redundancy flowing to new demands seamlessly supporting each other to deliver against our priorities around the world.
These strategic choices we've made.
The focus and strengthen our portfolio and daily use categories, where performance drive brand choice to establish and extend the superiority of our brands.
Make productivity as integral to our culture is innovation.
Elite constructive disruption across the value chain and to improve organizational focus agility and accountability are not independent strategies. They reinforce in build on each other.
We have executed well they grow markets, which in turn gross share sales and profit or some examples.
Global Homecare improved this noticeable superiority from less than 60% in fiscal 18 to nearly 80% superiority this fiscal year.
We invested in product performance and packaging and each of the subcategories and dish auto dish this care and surface care, including launching our new micro band 24 surface and taste standardization product in February.
We step change consumer communication, leveraging educational TV advertising, which delivered in the media lift to the category and our brands by so when consumers more ways to use our products.
We elevated in store execution with additional navigational and educational signage to help the consumer choose the product is right for them.
These superiority investments have yielded strong results and most importantly, there's going to markets.
Both before and after the pandemic.
PNG homecare extremity over 60% of the global category market growth and accelerated organic sales growth from low single digits to double digits increased profit improved market share one and a half points and increased household penetration all in the last two years.
The business grew organic sales, 7% fiscal 19, 7% in the first half of fiscal 20 have the crisis, we had great momentum they don't really accelerated in the second half of the year with nearly 25% organic growth.
China Fem care has been driving category growth through superior innovation in demand creation.
Innovations focused on organics.
Overnight protection and team.
The Whisper brand has driven 25% of category growth well, it bothers, 12% market share.
The brand has grown market share over two points over the last three years in Britain organic sales at an average rate in the high teens over this period.
When more PNG U.S. personal home care health care, rather has focused on improving the superiority across all five vectors, reaching over 80% superiority across the portfolio. This year.
CNG brands drove more than 25% of category growth this past year, roughly double their market share weight.
VIX Metamucil peptide abysmal Fila SEC align in sequel, each grew share over the past three six and 12 month periods with total U.S. PNG personal health care value share of a point or more over these time periods.
Yes, personal health care delivered its fourth consecutive year of organic sales growth with high single digit growth in fiscal 19 in double digit growth in fiscal 20.
We think our strategies the success, we've had behind them and an increase to subside a focus on health hygiene and a clean home all bode well for the future.
The relevance of our categories in consumers' lives has increased.
There may be long term increased focus on whom more time at home more meals at home with related consumption impacts.
The importance of noticeably superior performance potentially gross.
Organizational agility high employee engagement to meet the and changing needs of consumers and retailers likely becomes more important.
We believe PNG is well positioned to serve consumers heightened needs no change in behaviors and just sort of the changing needs of our retail in distributor partners.
All of which are critical to long term value creation.
I'll turn it back over to John to cover the outlook for fiscal 2021.
To underscore David's comments, we like our long term prospects.
Rooted in service of consumers with increasing needs.
The near term, though will be challenging and is more difficult to predict.
Our outlook starts with an assumption of how underlying consumer markets will develop.
Just by itself is highly uncertain.
The reality is that cold and cases are increasing in many parts of the world without the resources, our infrastructure to effectively manage it.
Will likely be operating without a vaccine or advance therapeutics through fiscal 2001.
This could prompt tighter containment policy is a dramatically reduced mobility.
Which would affect employment and overall incomes potentially leading to a deeper and longer recession across large parts of the world.
In the U.S., it's unclear how long will be operate in a double digit unemployment levels.
And how long there will be mitigating economic stimulus available.
There continues to be social unrest and economic distress in many parts of the world that affect the prospects for category growth.
These same dynamics resulted in an increase cost to operate.
There's also a risk of supply chain disruption of our operations or those of our suppliers being shut down due to local mandates.
Against this challenging backdrop, we're holding ourselves to an expectation of meaningful growth topline and bottomline and expect to be highly cash generative.
We're targeting organic sales growth in the range of 2% to 4%.
We expect to grow market share in aggregate for the year.
In markets, where growth could range from flat to around 3% value growth.
We are targeting core earnings per share growth of 3% to 7% versus prior year core earnings per share of $5.12.
The bottom line outlook reflects the full range of potential topline outcomes.
It also incorporates $300 million after tax of foreign exchange headwinds.
Largely offset by $275 million after tax of commodity cost tailwinds.
This up outlook also includes a 150 million dollar after tax headwind.
From the combination of higher interest expense and lower interest income.
As you consider the quarterly cadence of the year.
Base period comps will play a significant role in topline trends.
Organic sales growth for the stronger in the first half a year.
And moderate in the second half as we annualize the recent acceleration in category growth.
Bottom line growth should we assume a stronger in the second half due mainly to higher cost productivity as the year progresses.
Fiscal 2021, we'll continue our long track record of significant cash generation and cash returned to shareowners.
We are targeting another year of 90% adjusted free cash flow productivity.
We expect to pay approximately $8 billion and dividends and repurchased $6 billion to $8 billion of shares.
This outlook is based on current market growth right estimates commodity prices and foreign exchange rates.
Significant currency weakness commodity cost increases.
Additional geopolitical disruptions major production stoppages or additional store closures are not anticipated within this guidance range.
Now I'll hand, it back quickly, it's a David for closing comments.
We delivered a very strong fiscal 2020 meeting or beating each of the key goals, we set out at the start of the year in a challenging and volatile market.
We believe we have a bright future ahead.
We have the REIT strategies portfolio and maybe use categories were performance drive brand choice.
Appear yardi and products packages consumer communication retail execution in value.
Productivity in all areas of costing cash.
Constructive disruption in all facets of the operation.
And improved organizational focus agility and accountability.
We feel we have the right priorities to New York immediate challenges the company is facing.
Concerning the health employee health and safety maximizing product availability and helping society overcoming the challenges of the crisis.
We're stepping forward not back we're doubling down to serve consumers and communities.
We're investing in the superiority of our brands.
In the capabilities of our organization.
We're doing this in our interest in societies interest in the interest of a long term share owners with an eye fixed on long term balanced growth and value creation with that we would be happy to answer your questions.
Ladies and gentlemen, if you have a question. Please press the star followed by one on your phone. Your question has been answered or you would like to withdraw your question, Chris Star followed by too.
Your first question comes from them and then Wendy Nicholson with Citi.
Hi, good morning, Thank you.
My question has to deal with the enterprise markets. Both from a short time perspective, and I got the longer term more strategic perspective in the short term or you see any of the challenge is that the pandemic had on sort of place in that market that particular, showing any signs of improvement or the challenge of alleviating and then longer term.
Okay, given given where things stand are you thinking any differently about any of those markets are you deciding tail.
Sure the Cal and it's maybe more negative than I need, but but it's like change your investment philosophy with regard to any of those markets. Thanks.
When the I'll make one comment and I want to turn it to John because she has direct responsibility for the enterprise markets.
This comment I'd make is the organizational structure change. We made has really helped let's deal with this recent pandemic. We grew in enterprise markets, where there were facing just a range as you know very big challenges that if anything its reinforces the strength of the organizational choice and actually the possibilities, we see for the future when it turn it to John's.
How would deal with directly but no we havent changed our long term view on the attractiveness of the enterprise markets.
And I'm going to take one step to the size of them they'll come hopefully back to the middle here.
Remember that the whole from an organization structure.
Context.
One of the driving forces and the design was to free up.
Category leaders and sector Ceos to focus on the biggest opportunities, which was the focus markets, where we generate 80% of ourselves and 90% of our profit.
And I of course don't want to assert direct causality, but there's nothing to indicate that isn't exactly what's happening.
So in the U.S. we grew.
As we said earlier, 10% over the year, 19% in the last quarter.
In China, we grew 8% over the year, 14% in the last quarter.
Those are two largest focus markets. So that part of the organization strategy is working well.
We also wanted to move decision, making in enterprise markets closer.
To consumers competitors customers.
With the hope that we would continue to provide a strong growth in those markets. Both on a top and Bottomline standpoint, and that continues to be the case.
We grew despite all the difficulty of last year, 3% organically on the topline.
We grew.
16% on the bottom line.
We exited the year with only two of the enterprise markets, that's over 100 countries, losing money.
Which is unprecedented for us.
And we did that we've built that profitability.
Despite significant headwinds and while growing market share in aggregate the enterprise markets were up 0.2 points.
But we're happy with all of that not to get back to the middle and answer to your questions more directly yes, we're facing challenges and enterprise market as a result of the current both health and economic crisis.
Yes that is affecting market sizes are negatively.
No that's that's not over and arguably continues to worsen.
In terms of our.
Our long term view on these on these markets there are incredibly important piece of the company.
We generated an enterprise markets typically cross $14 billion and sales this year $1.6 billion, an after tax profit.
So there there are meaningful and and can create value.
We want to be more consistent in our efforts to do that so we have made changes to our business models to our cost structures to ensure that as we grow in these markets. We can do that.
Profitably, but we remain committed to success in these markets and highly confident we can deliver that.
Your next question comes from the line, Kevin Grundy with Jefferies.
Hey, good morning, everyone congratulations great year.
In for David just an organizational priorities and how these may have shifted as a result at the pin debit. So no shortage of discussion of course in the marketplace around accelerating channel shift online more time spent working from home, which seems like it will it be lasting certainly to some degree much bigger focus on health and wellness rotor and puts us.
He is cheap he gets to me that use so did can you discuss some of these bigger turns that you see no lack in versus those that are more transitory and perhaps how your priorities in the organizations priorities may have shifted over the past six to 12 months in light of these consumer shifts that.
Certainly oh good question any questions. There first the if I look at what's happened from the last couple of years, if anything it's just reinforce the set of choices that we've made.
What we are seeing in the Pandemics frankly accelerated is consumers are right now moving more and more back to trusted brands.
They are the pandemic is actually but many many more people back into homes and the team that health hygiene and cleaning categories, and we said in a lot and sometimes people get tired of it but it's it's categories, where performance rice bran choice really matters and I think it matters, even more now we were seeing that before the pandemic because we grew very.
Very well in the first half the year, 6%, we saw it through the pandemic, but those that focus on health hygiene, and clean and not having things that really matter and one of the other points Anthony can the strategy, that's really work and it fits what's going on right now is because of the shift E. Commerce is tremendous pressure on retailers and Frank.
All participants on profitability sewage if your strategy is one where innovation grows the category size. When you do that you create.
The larger hi, which allows both the retailer to increase their profitability the manufacturer and it doesn't put the rest of the industry in the bad place, it's actually in a better place. So to me I believe the strategy is actually Luminaires and the right place you mentioned S.G. I think it's another area, where PNG as particular strengths.
Well before it was invoke PNG has always had a position of being a very strong corporate citizens. We have stood up in both social sustainability in environmental sustainability was sustained efforts in those areas is the way we operate is consistent with our values and so as there has been a greater focus on that I think that as well it matters because consumers more.
One more as well as for all stakeholders one of the values of the company's behind the brand and I think that also plays well to the strategy what I feel one of these best about if we have not had to make big shifts in our strategy is result of what's happened is just reinforces the importance of it in the final point I'd make is that.
Organizational changes that we need which are putting more accountability closer to where consumers are customers are in recognizing the huge strength of our people and capabilities. The organization on leasing it to me is shown sequentially stronger and stronger results in better and better activation of that strategy you saw.
I was going into crisis, because again the crisis accelerated trends that were happening in our people stepped up magnificently well beyond trying to deliver the business. They initiated many these projects to can we make masking donate them can we makes hand, sanitizers and donate some of those they shields, we've never made but.
A group two different groups decided they could refocus some of our packaging equipment and turned that that packaging equipment into something that can make face shields, we've shipped hundreds of thousands that they shields, Connecticut easy, but it just shows you that when you have engaged people care about those the consumers into communities what they can.
It is so it's just we accelerated the choices we've made in Kevin I think its place in a very good position coming out of the pandemic because of the capabilities we've been developing.
Your next question will come from the line of Lauren Lieberman with Barclays.
Great. Thanks, Good morning [noise].
One thing I wanted to ask about why the productivity held beyond that 6% organic sales growth this quarter that productivity. It was really remarkable at 440 basis points in total between caustic at Keno.
Regarding Barry Tom comparison, and on the more than double I think the run rate through the fiscal year to date.
Maybe anything about what has been done kind of differently I know part can you typically stronger fourth quarter, everybody, who carry forward into 21 and beyond it seems that you've been able could you get that like hopping back or can't get productivity opportunities that.
Thank you and salad kits and achieved in the environment.
Because it can inform the hacking.
Going forward. Thanks.
I'll make one comment again I'll turn it to John I missed when.
We've talked a great deal is not the fact that.
All buckets I'll spend pools has been looked at and we've leveraged to me both the digital ecosystem as well as the capabilities of our organization to make substantive changes in one of the best illustrations of that is what happened when the pandemic hit you start to see both attendance issues in supply challenges we've learned.
Time, and time again that when we ask groups of people to step up and address change. They can do it incredibly well we've had plants that have operated at 90%.
Of their effectiveness with half the people in the short run demonstrated again, there's more there, but I'll turn it to John because the specifics that does the gross margin operating margin to meet progress has been sustained over the last several years and if you look forward, we see still tremendous amount in both media, we see with many of our non consumer facing spending.
In areas as well as cost of goods.
John.
Just two comments one I'm glad you realized.
You always have that the productivity savings do accrue.
More to the back half of the or in the front half of the year, because that's going to be important as you think about.
Your quarterly kit.
Cadence for estimates next year, because the same thing the same pattern will hold true.
We have learned a ton.
As David.
Was indicating as a result of experience we've been through.
The last four months.
And one of the things I believe we've learned is that there is even more opportunity a than we thought.
I'll just give you one simple and obvious example.
Travel and entertainment.
We never really I don't think could have imagined that we'd be accomplishing all we are with us effectively zero.
Travel and entertainment.
And that's not that's not the right long term answer.
But.
The right long term answer is not what we were doing previously we've all become much more effective.
Working and very different ways with digital tools is as David indicated.
I think the general comfort with digital tools that are available to us.
Makes it much more likely that that we will seek those tools out in terms of improving.
Our work efficiency and effectiveness across all of our activity systems.
So there is significant David mentioned that the.
Actually inefficiency, which is clearly a.
Opportunity as well.
So we continue to be committed to productivity as a fundamental.
Foundation stone and our strategy it enables investment and superiority.
Which rose markets and then flows through the.
The income statement.
Next question will come from the line of Steve powers with Deutsche Bank.
Hey, guys good morning.
Yeah. So we've heard a lot of CPG companies, particularly across food and beverages that but I think across the board take this moment to or aggressively simplifies simplify base level assortments to maximize near term availability and maximize turns.
Yes can you talk about what steps you've taken to do likewise and.
So at what pace expect there to you de layering in a bit more variation by seems if hoping you catch up to supply constraints and things start to normalize I guess the real question. When you do you start to layer in more variation.
Do you expect that to take more in the form of you bringing back some of the things that you. Most recently cut out or is this an opportunity there to redirect innovation and brand new sources in new directions to Tabasco market growth in the future.
Yeah again several questions first.
Independencia kit, yes in some categories, we went to more simplified ski line ups in order to maximize the capacity as though the high turn items and I'm sure, we and many others did that.
And we learned through that as well in some cases, where were some smaller wind skews that or meet special consumer needs and they will come back.
Theres also some opportunities for some continued SKU rationalization to better serve consumers need to retailers need to both of those are happening it's very category specific.
On what we're doing but I'd say in general there's a sharper look at can we have a more focused portfolio with really differentiated products I think yes that that will continue the change in manufacturing to me.
In order to adjust the agility needed I think is one of the other things it's really been.
I know you that were working before but coming into the crisis and then through it.
Looking at business continuity plans, the total supply system, because the appropriate number of suppliers in order to ensure you have the agility to react to instantaneous capacity screens that were seeing I think there's all been learning in those areas I expect on other side of this.
Huh.
Again varying by category, but there will be some streamlining in order to meet the needs.
And in some of the categories because there will be a sustained increase in consumption. We're looking at what we need to do to ensure we have the right capacity to meet those needs because I think a lot of for the spike that we've seen is not going to go away in some of these categories consumers and developing new habits.
And I think many of US believe that will last well beyond appendix.
Next question comes from the line of Kairamo sitting with Morgan Stanley.
Thanks, and hopefully well with you guys.
Another quarter with very cold market share momentum can you discuss what you're seeing in terms are competitive response from key competitors on either the AD spend from her promotion probably more towards the end of fiscal Q4, or so far in July and how you will ensure that PNG marketshare momentum continue going forward.
If you do experience greater competitive intensity as competitors will know could if it's still here, we're sharing Walker and also John your Kirkcaldy thought from consumer Curry down in private label share crusher country in this macro environment.
Let's go over Q3 call, maybe just give us an update on where we stand today there versus <unk> 0.2 months. Thanks.
Our first on the market trends our market share a global market share is actually strengthened through the year we.
We were up <unk> 0.3 for the the total year 0.4 for six months 0.5 for the past three in terms of the last quarter.
In terms of promotion intensity activity as you would imagine in categories, where their supply constraints you'd see less promotion is everybody focuses on meeting the basic supply needs and then of the customers and that consumers and on the categories of.
Tissue tower, which is our family care homecare with to be dish surface in either.
That's largely continued into this fiscal year is demand has ceased and if you take the U.S. Susan.
The largest market willing to focus on you know when you watch the daily use and used to be news. There's just a lot of debate on how much it will open up or even stop or even go back. So I think the focus on home personal care cleaning and hygiene is likely to sustain itself.
And I don't expect in a short run dramatic changes in the promotions on all those games right.
Oh boy specific and in many cases, great country specific.
We've chosen to stay extraordinarily focused on the strategy, which is focused on investing in the superiority across the five elements. We've talked in through this last couple of years, that's consistently works and both hi promotion environment, which we see in some countries in categories and in this last three to four months when there was lower promotion.
Because of supply constraints and as I think about next year, there will be and I'm sure competitors will come in and don't have innovation and they'll be changes in your promotion strategy, but we try not to get distracted from the strategy, that's working and again across the balance of countries in categories that continues to work.
And I think will.
John.
On consumer trade down.
As we've talked before.
We're not immune to that.
And that could become an increasing dynamic going forward to the extent unemployment grows and.
Stimulus and support shrinks.
With us as Weve also talked where in a much better positioned to deal with them we have them historically.
I think the environment actually helps us as well so let me quickly unpack that.
We are focused our portfolio as we've talked several times already on this call in categories, where performance drives branchless.
By definition them.
A portion of the value equation is performance entity, except that we have.
An advantage and performance, that's noticeably less noticeable and obvious.
Dot along with a fair price, albeit a small premium.
Is viewed as a as offering value.
And we have much much higher percentage of our portfolio. That's that's well positioned in that context that as we headed into the last recession.
And the needs.
Core performance, so the degree to which performs effects of consumers personal value equation.
As of the price is higher than it's ever been.
Which also works in our favor.
The [noise].
To date.
This can change obviously, but today.
If you look at private label market shares as one proxy of trade down.
We're not seeing Ana.
Private label shares in aggregate across our categories in the U.S. were down 40 basis points. The last three months, there were essentially flat and in Europe.
Last point, we have.
Significantly built out not all was perfectly but we've built out our pricing letters.
We didnt have items like tied simply available for consumers in the last recession and we have many more of those are currently.
So.
Again, we're not immune.
Real.
The best way to attack it is with a.
Performance noticeable mostly superior performance on a fair value to have the right pack sizes available.
For consumers, who are limited in terms of their cash outlay.
And and double down on the strategy, that's working in versus stepping back.
Next question comes from the line up Nik Modi with RBC.
Good morning, everyone.
John I was hoping you can just give us some more complex.
The guidance for next year on the topline and just in the geographic perspective, just so we can understand kind of how you're thinking about you know the enterprise markets. Some focus market then and then thinking about developed Europe, how the super helpful.
So the first piece of contracts I provide on the topline guidance for next year, because I mentioned, our prepared remarks, it's that's.
It's all based on what we're expecting a market growth and then we would expect to grow slightly ahead of that and continued building share.
And as I mentioned, we see markets growing.
Modestly.
Probably 1% to 3%.
So the 2% to 4% range is consistent.
With building share in that environment.
If we look at our own forecast snack for topline growth and and enterprise versus the balance of the market, they're both within that range.
So we're going to continue to expect not only total company gross.
But both focus and enterprise market growth on both the top and bottom line.
Clearly in the current contracts so, let's just use that as a proxy for the future.
We're seeing very strong growth of us in China as we've talked.
If you look at the quarter.
Growth in Europe was much more modest but that has picked up recently.
And and clearly while we expect gross from the enterprise markets. There are currently the most challenged just in terms of the operating environment.
Economic both economic and health pressures that families are feeling.
As.
<unk> comes from the line of Olivia Tong with Bank of America.
Thanks, Good morning, and.
Well that's of clearly demonstrate on better execution, obviously it sounds from competition. So just a quick questions about how you think about continuing to try and background I'm.
There's more to come from.
<unk> going to anything and then just refreshing and gone away or is it more around turning around underperformers warranty expense.
Okay. Thank you Carol.
Can you talk about what you're doing there to try and around that performance you can do.
Can you talk about the innovation pipeline.
Since obviously I think he was going to be challenging in the near term and then how much you obviously talked that kind of although clean data how much of this is coming from established players versus and the long tail on sort of numerous brands.
Thank you.
Olivia first and just the last thing you said, whereas most of the coming from the established brands are long tail.
Our core is going very well fabric care Roland.
Fabric tissue towel, a home care health care.
All going very well our beauty business grew very well last year skin care personal care, a video and a persistent given all that grew well. So the court grew well and again central to the strategy and it's obviously the biggest part of the business in the two biggest markets grew a U.S.
In China.
I look forward.
In order for us to be a dependable long term grow or we have to grow the core and strategy is focused on making sure. The core is healthy and.
The core has to continue to extend to address new benefits that are relevant in those categories. There's many many examples we've given in the past event and certainly we get more there's the home care. Examples that you see out with micro ban and many other things that occurred on the Mr clean burning and for breach brings over time.
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We also believe and RC and certainly some of the additional investments we've made are paying out but if they internally developed.
Innovation as well as some of the acquired innovation our track record is getting increasingly better on those as well and in this year we have.
Certainly some things coming out of our PNG venture, but that's a small portion of the total company, but what it does speak to is innovation is driven core core in more and then in new benefit spaces, new jobs that we can do to me, which speaks to just the whole innovation process is working in the company, but I fully expect for the.
As it were going into right now and the next several years the cold be the biggest driver that and there's still significant opportunity. So what I Wouldnt think is where in mature categories. Four years ago people sit with mature categories and now you see big established businesses and take the African home Theater has moved from low single digit.
To mid single digits to high single digits in many many countries and if you if you get down to the next level and look at household penetration by items, what you see as many of them into 10 to 30 range and tend to 30%, which means the majority of consumers haven't used the product in the last year and had an experienced in the benefit of the improved performance.
We built so is it and we've gone back to rediscover the opportunity to build household penetration new users grow the market size leverage superiority to bring new users in and then leverage additional benefits to trade people up to higher order performance that's happened across.
Cost of 10 core categories and then when you do it well you grow share and probably the Best example, I gave earlier was in.
Personal health care were virtually every brand grew share over 369, 12 months and because of new innovation that they bought to the market is delighting the consumers so core core and more and then our venture effort to me is now producing new branch was evoke and update coming out this year.
Just a question comes from the line of Rob Stein with Evercore.
Great. Thank you very much I can drill down on the U.S. ecommerce business and and Oh, Yeah. If you could address three aspects one you know.
Rough sense or the kind of growth and growth momentum in the business and March to June what percent of sales and how sticky. This is looking at and then you know in response to that would have a sort of changes that you're doing organizationally, either with the salesforce or the supply chain.
Amit the increased demand for E commerce.
As a channel and then finally, how do you assess your competitive advantage in E commerce versus brick and mortar. Thank you.
Well take a cut if some of those I'm not sure I have all the specifics although some of those we can certainly get you afterwards.
The ecommerce business, it's been growing for now several years and 30% to 40% range.
As you know were most developed in China. The U.S. is also growing extremely fast and we expect it continue we've adjusted and get it fits with the strategy, we've adjusted our supply chain, including our packaging capability to be able to meet the needs of E commerce consumers and ecommerce aggregators that had different needs because.
The instead of shipping and a case in a pilot load to a store it's in each going through.
Different path to the consumer and that's worked well one of the things. We worked very hard on him is present today as we want ecommerce years growing an absolute and we want ecommerce shares to be equal or higher than the offline shares walk in to have the same and profitability and we've made very good progress on both of those as well in the.
The lesson, China and in Europe, and that will continue to be a priority, we want to be agnostic to where the consumers by the product in the most recent period. The U.S. ecommerce business that was up 50% in fiscal 20, we all know there's a spike driven by cobot, how much of that will sustain we'll see but I think many are developing new habits. So.
I think the off we are prepared for that to continue to grow at that pace and meet the consumers' needs and we developed the last point I'd make additional capability because we've worked with many of the ecommerce companies in the bricks and mortar omni providers to ensure that we minimize the cost.
When we make it to when the consumer gets it working with them to reduce the the transportation or last mile.
All of those are active strategies, we can other than to 50% you asked if there's more specifics that need you know as John said, we're going to follow up with you. After this meeting to getting the any more specifics on a quarter I think Robert we are to your question of are we relatively advantage to within that broadly to find chat.
I will include omni commerce, and brick and click et cetera.
I continue to believe we are.
There's no reason to rest.
But as you I have talked before it is in reality, a limited assortment environment from a practical shopping standpoint.
And as a result of that the barriers to entry or very very high.
The need to be on the first and second page.
Of a search preferences.
Large established superior brands, which which we have again.
No guarantee of future and no reason to arrest.
But we embrace the evolution of but markets towards ecommerce.
Your next question comes from the line of Jason English with Goldman Sachs.
Hey, good morning, everyone sexually coty on for Jason This money. Thanks for taking my questions I just want to hit the home care section a little bit guys sided 30% growth. This quarter, how does the supply demand balance look right now across the industry and from a supply point of view are you guys investing in more capacity right now.
And how much capacity have you seen come on already or do you expect to come on as competitors and best them more capacity. Thank you.
Okay, CODI undertakes a couple of hours and some of the the data certainly I don't know what's happening with competitors on capacity Homecare had an outstanding year and again in home care in all world is disappear surface care and air care, So those categories and those brands globally.
The category grew.
About 16% this year our results rather than we grew ahead of the category and grew share.
In terms of capacity.
There are areas like a micro band launch that went out in February that we are capacity constrained now because we launched a white as it was hitting unbeknownst to us and the demand spiked a today the run rate isn't there on that going into couple of hundred million dollar range, which is more than we expected. The time, we lost we expect and more.
Over more typical build having although we knew it was very attractive product because of the sustained surface benefit surface scale benefits at all for.
In areas like Swiffer in hand dish. We're also working very hard to make sure we get inventories back up but the demand side you can imagine with people now 60 more meals at home are gone in and around the world Ferry and automatic dish, which should be cascade around the world Ferry, both doses fights and we've seen the home care tadic.
Oh Boy I'd take the U.S., sometimes the category size over many of these weeks is going into 130 to 140 range.
We've been able to meet most of that need there are again, some specific items, where were working very hard to increase the capacity and that will be coming on and kind of fed demand over the next couple of quarters, but we continue to ship very very well and and were getting back.
Both shelves and eventually the custom inventory and all employees back in line, but we're not there yet as we closed the.
For fiscal year in certainly in July and as I've through this July we have not seen the demand slowed down very much yet and in the home care area, which to me bodes well for for the year.
Next question comes from the line of Mark Astra can't with Stifel.
Yeah, Thanks, and good morning, everybody. So wanted to touch on some of the changing consumer preference commentary and can talk about.
At this particular I ask whether you still think.
Makes sense to earn a brand which is much volatility ads that its relative to the base portfolio. These days, obviously, it's had a lot of contribution to the recent year if they get it urea that's kind of broadly can you can kind of commented that about that specifically in terms of how you're thinking about portfolio today the great. Thank you.
A first the first question how do we feel about SK two very committed in thrilled that we have it.
If there was certainly a bump the last four months.
It hit us hard with mainly travel retail business, but if you look even at the last few months in China is growing.
A very nicely now and if we go into the year works that we continued to be optimistic about the brand consumers love the brand and we have brands focused on leading consumer needs and S.K. too. That's a great job. It's had several years of sustained top and bottom line growth and frankly I'm not disclosed at all by a four or five mark.
Yep, because largely the travel retail.
Business got impacted in the markets. It it competes with the consumers and where it is present it continues to do well and it's already starting to rebound so.
Now, we're very committed FC too and if I step back at the global scan in personal care business, which includes again the personal care a video skin care in prestige skin.
That whole category, even with what happened to SK to grew nicely last year in the upper mid single digits.
Indicating that the broad portfolio can can weather hit like that and it's consistently global beauty is consistently been performing well for the last couple of years and neither are optimistic again that the business that was travel retail will find itself somewhere else of consumers looking for the brand they'll go where they can find and.
And we've seen that more recently with the.
The rebound in China.
With SK too.
Your next question comes from the line of Bill Chappell with Suntrust.
Thanks, Good morning.
Can you talk about kind of your.
<unk> outlook over the next year for the grooming category as.
Well, especially kind of worldwide I mean, how it plays out we have obviously corona beards in the U.S., So nice to rebid mullet circling back in Australia over the weekend and so anything you see there that you have kind of how has become out of this war or or it was the category.
Currently impaired or do you see a it slowly get growth as we move into calendar 21, just any thoughts would be great.
Sure that.
Well, we've seen a hit the the and the coated period grooming up through January was actually making very good progress and even with the cobot hit and people at home and unless shaving because if people not going outside of midnight going outside it's still grew this last year and if I take up through January the first seven much of the year.
It was growing faster or is the fastest growth we've seen in several years, we've actually seen an increase this year and new users. We've got the fastest news user growth we've seen in many years, which means people are coming in what we have done though and this is important we.
We have a certainly the mail blades and razors is the biggest part of the business, but we have male and female we have the full latter, including disposables, which again grown and now we've gotten a very fast growing appliance business call. It bond, which is growing share in this growing double digit right now as people have moved to a draft form in some play.
Basis, and then we've launched I can't see Gillette initiative to address men with here so the baby.
The shave category is really now embraced the categories grooming and is taking care of people with here without facial hair men women all price points and as it does that to me. It's it's right now creating a strategy is it all out to grow in most environments and I believe we.
Let's say as people go back to work.
In offices and outside the home, we'll see a pick up and.
The wet shave right in the meantime will continue to see very robust growth in dry say very robust growth in this team CGEN that new Brian It addresses many of the tools needed for people with facial here for grooming facial hair. So.
It's also a highly profitable business that continues to that we're very committed to long term.
On the one other comment we grew double digits in China. This last year, which is another indications that a as the economy came back and while it's not post koeppen China's return more to a more normal operating.
Environment than most countries and grooms going double digit in that country, which again tells me just the broader portfolio can and will roll into future increased value for the company.
Your final question will come from the line up Andrea to share with JP Morgan.
Hi, Thank you for thinking here and I'm glad to hear your around congrats on results you couldn't give us good Sweden Parker fourth quarter executing our to light today from your guidance. It looks good there are some restocking you asked.
But can you help it seems about essentially for your skirt, including application Lumiere cool season ahead right to gain market share momentum you spoke off rockets qualitydocs crackers seating I guess consumption thing okay.
I Wonder if you could probably appreciate the monthly cadence. If you will is very different by category by market.
And it has been very volatile recently, it's it's hard to make.
Well here on a chance out of what but the overall.
Thought that I would give you is.
Got it remained strong throughout.
On July.
Has remained strong.
But we also have to remember that all of that's happened for instance in the U.S. context.
With significant financial stimulus.
And we don't know as we sit here today, what the future of that is going to look like.
And whether it will exist.
And that's just one example of the of the pretty dramatic.
Unknowns.
That make it difficult for me to say you know because July has started off while.
We should assume the first quarter is going to be strong.
So I can't say, though.
One other beyond that I just offers two large degree it depends on what you believe the markets in Brazil growing John's earlier state in certain our view is we will grow ahead of the market in our innovation will be Ics stimulant to market grows, but there are a macro factors that a big enough relative to the.
Recession, the kogan impact disruptions to supply chain, they're very hard to predict we ended the quarter with good momentum and certainly as we go into the quarter. Good momentum the health hygiene and clean categories. We think will be focus will be focused categories for consumers and it's your yes as good as ours on when people.
Well in increasing numbers would turn back to offices and the working outside the home. This one time right now it looks like in the U.S., that's slowing down but it's cheap it's it varies all over the world in aggregate, we think we're well positioned for whatever comes as to do better than what the market will give and we worked very hard to.
To make sure that we continued to be good contributors to our consumers are customers into the communities, which we operate.
Thank you. Thank you all.
Thanks, everybody John.
And carry and myself will be available the balance of the day, we're at our normal work numbers feel free to contact us I know, it's a busy day for many of you.
I will also be here tomorrow. Thanks.
Ladies and gentlemen that concludes today's conference. Thank you for your participation you may now disconnect have a great day.
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Andrew.
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Uh huh.
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Uh huh.